| Along with the development of China’s stock market, scholars are paying more attention to the effects of the volatility of the stock market on the economy. The consumption function of the stock market is an important part of the stock market’s functioning. The consumption function is also known as the wealth effect, which means that the fluctuation of stock prices leads to changes of stockholders’wealth and residents’consumer confidence. This effect will eventually causes the changes of household consumption expenditure.This paper studies the wealth effects of China’s stock market through the direct and indirect wealth effect mechanisms. Direct wealth effect is the mechanism that the fluctuation of stock price changes the real wealth and thus consumption decisions of the residents. Indirect wealth effect, on the other hand, means the mechanism that residents estimate the economic trend through stock market performance to change their consumer confidence and then household consumption expenditure. Being an important part of virtual wealth, stock wealth also contains the wealth nature of generalized virtual economy, which implies that stock wealth represents its real value as well as the psychological factors of the household. Therefore this paper explains the causes of stock market’s wealth effects from over-confidence, wealth illusion, preference and bandwagon effects of the household through the perspective of generalized virtual economy.In the end, this paper suggests that in the era of virtual economy, in order to realize the consumption function of the stock market, the government should emphasize the perfection of the construction of stock market mechanism. In the meanwhile, we need to improve the interest patterns to protect the interests of small investors to stabilize the household’s market confidence. Moreover, we should improve the social security system and enhance the building of household’s consumer confidence system. |
